Large Credit Unions Urged to Join Group of Washington Credit Unions Seeking Prize-Linked Launch
October 3, 2011
October 4, 2011
Representatives of at least eight credit unions in Washington State confirmed interest in a cooperative effort to offer prize-linked savings accounts to their members in early 2012. The next steps were discussed in a conference call last week.
Prize-linked savings accounts offer members a chance to be entered into drawings for monthly and annual cash prizes for opening an account. The prize pool is funded by credit unions, not by depositors, so the money invested in the savings accounts stays in the accounts. Most of the credit unions planning a possible launch are small to medium-sized. Their representatives will begin reaching out to CEOs of larger credit unions to try to generate more interest. A higher participation rate among credit unions would bring down the administrative costs while building a potentially larger prize pool.
The door opened for Washington credit unions after the state legislature passed legislation earlier this year.
Meanwhile, interest is heating up in several other states, according to Doorways to Dreams (D2D), the not-for-profit organization that promotes financial opportunity and security to low- and moderate-income people through new products and programs. D2D was instrumental in helping Michigan launch the nation’s first cooperative prize-linked savings program, which now includes 42 credit unions in which 16,000 accounts have been opened with savings of over $28 million.
Doorways to Dreams is hosting the first-ever Prize-Linked Savings Conference to address the growing interest.
“We are bringing together financial service executives, policymakers and public officials, researchers, legal experts, entrepreneurs and funders for a robust discussion of the role prize-linked structures can play in motivating savings and innovative models to scale PLS nationally,” said Sarika Abbi, the Savings Initiatives Specialist for the D2D Fund. The conference is scheduled for Nov. 18 in Boston. Registration is available online.
Michigan credit union members are given one chance for the drawing for each $25 deposit. The annual grand prize is $100,000, and there are multiple monthly drawings for smaller prizes. Research shows annual grand prizes as low as $10,000 will incentivize savings because “that number seems realistic. People believe they can win,” according to Brandon Trenz of CU Solutions Group, which provides administrative services for prize-linked savings pools.
Washington credit unions are determining whether to operate a program themselves or to have a business partner provide operational solutions. One thing is certain: there is no shortage of low- to moderate-income people in Washington who might benefit from prize-linked savings.
“In 2009, the FDIC reported Washington State had 103,000 unbanked households, and over 450,000 under-banked households,” said Rebeca Potasnik, Executive Director of the Washington Asset Building Coalition. “Almost twenty-five percent of the households with incomes between $30,000 and 50,000 are unbanked or under-banked. They should be incentivized to save. All households benefit from saving money and building assets.”
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